MS. RUBY SHARMA ,MUMBAI vs. INCOME TAX OFFICER WARD 19(3)(1), MUMBAI

PDF · subscribers
ITA 4118/MUM/2025Status: DisposedITAT Mumbai06 May 2026AY 2011-1210 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had discharged her onus by furnishing necessary documents to satisfy the requirements of Section 68. The AO's addition was based on surmises and conjectures without making independent inquiries from the lender company.

What were the facts?

The assessee purchased an immovable property without filing a return of income. The Assessing Officer (AO) reopened the case and added the investment amount under Section 68, treating a loan from a private limited company as unexplained. The assessee argued that she provided all necessary documents to prove the loan's genuineness.

What were the issues?

Whether the notice issued under Section 148 was valid and whether the addition made under Section 68 for the loan from a private company was justified when the assessee provided supporting documents.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 143(3),Section 68,Section 2(22)(e)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM

For Appellant: Shri Rajiv Khandelwal
For Respondent: Shri Annavaran Kosuri, Sr. DR
Hearing: 27.03.2025

आयकर अपीलीय अिधकरण �ाय पीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM I.T.A. No.4118/Mum/2025 (Assessment Year: 2011-12) Ms Ruby Sharma, ITO-19(3)(1), 39, Ground Floor, Goregaonkar Piramal Chamber, Road, Gamdevi, Grant Road, Vs. Mumbai-400012. Mumbai-400007. PAN: BFYPS7452G Assessee - अपीलाथ� / Appellant Revenue - ��थ� / Respondent :

Assessee by : Shri Rajiv Khandelwal (Virtually Present) AR Revenue by : Shri Annavaran Kosuri, Sr. DR Date of Hearing 27.03.2025 : : 06.05.2026 Date of Pronouncement O R D E R Per Arun Khodpia, AM: The captioned appeal is preferred by the assessee against the order of Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi [in short “Ld. CIT(A)”], dated 05.06.2025 for the Assessment Year (AY) 2011-12, which in turn arises from the order passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short “The Act”) dated 31.12.2018 passed

ITA No.4118/Mum/2025 Ms Ruby Sharma by ITO, Ward-19(3)(2), Mumbai. The grounds of appeal raised by the assessee are as under:

“The following grounds of appeal are independent of, and without prejudice to, one another:

1.

The Commissioner of Income-tax (Appeals) at the National Faceless Appeal Centre, Delhi (hereinafter referred to as the CIT(A)) erred in upholding the action of the Income-tax Officer 19(3)(2), Mumbai (hereinafter referred to as the Assessing Officer) in issuing notice under section 148 of the Act.

The appellant contends that on the facts and in the circumstances of the case and in law, the notice issued under section 148 is bad in law and consequently, the assessment order needs to be quashed.

The appellant further, contends that the reasons recorded are insufficient, vague and without application of mind and hence, the notice issued under section 148 is bad in law and consequently, the assessment order needs to be quashed.

2.

The CIT(A) erred in upholding the action of the Assessing Officer in making an addition of Rs 2,23,19,134 under section 68 of the Act on the ground that the appellant could not provide satisfactory explanation regarding the genuineness of the sources of funds for purchase of an immovable property.

The appellant contends that on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the Assessing Officer inasmuch as the Assessing Officer has not correctly appreciated the facts of the case in its entirety and hence, the said addition ought to be deleted.”

2.

Concisely stated, the assessee had not filed her return of income under section 139(1) of the Act for AY 2011-12. Later on, it was observed from the AIR details that the assessee had purchased immovable property for a consideration of Rs. 2,10,00,000/- during the year under consideration. In absence of return of income by the assessee, the ld. AO has the reason to believe that the income chargeable to tax has escaped assessment, accordingly, the case of assessee was reopened under section 147 of the Act. Notice under section 148 2

ITA No.4118/Mum/2025 Ms Ruby Sharma was issued on 28.03.2018, in response the assessee had filed a letter dated 13.04.2018 stating that the return was filed on 31.03.2014, declaring total income at Rs. 1,48,759/-, but the said return was not accepted by the Department, as it was filed belatedly beyond the due date 31.03.2013. However, the said return was accepted by the Department as return filed in response to notice under section 148 of the Act. Further, statutory notices under section 143(2) and 142(1) of the Act were issued to the assessee, which were duly responded by the ld. AR of the assessee from time to time and have furnished necessary details called by the ld. AO. During the assessment proceedings, the assessee was asked to explain the source of investment in the property purchased i.e. Flat No. 1201, 12th Floor, Building “Universal Heights”, Mumbai-400007. In explanation to source of investment, it was submitted by the assessee that she had procured a loan of Rs. 2,23,19,149/- from Yakov Trader Pvt. Ltd. and the same was utilized by her in purchase of subject property. In support to the aforesaid explanation assessee furnished Audit Report, financial details of the Yakov Trader Pvt. Ltd. for AY 2011-12. On perusal of such details, it is observed by the ld. AO that the assessee is one of the directors of the said company, therefore it was show-caused, as to why the loan given by Company to its director should not be considered as deemed dividend under section 2(22)(e) of the Act. In response to the said show- cause notice assessee clarified that the Reserve and Surplus in the said company were not created from accumulated profits, as the company did not commence its business activity during the year and therefore the question of having 3

ITA No.4118/Mum/2025 Ms Ruby Sharma accumulated profits for the year or past years does not arise. It is further clarified that Reserve and Surplus of Rs. 2.25 crore were created out of securities premium. On a thorough analysis of the information available before the ld. AO, it is observed by the ld. AO that the aforesaid investor company was created for the sole purpose of laundering of money. The said company had all the hallmarks of a shell company. The ld. AO has further made certain observations, such as the assessee herself is one of the directors in the said company, the address of the company and the address of the assessee are same, there are no operating revenue and the loan amount of Rs. 2.23 crore granted to the assessee is the only asset of the company, apart from certain other miniscule current assets amounting to Rs. 2.77 lack and for the years there was no interest charged from the assessee for the loan given.

3.

In backdrop of aforesaid analysis, the ld. AO drawn the inference that a shell company is incorporated as a conduit to launder the money. As per the ld. AO, there were certain other entities from whom the said investor company has received an amount of Rs. 2.25 crore, which though are unrelated entities but no satisfactory explanation could be furnished by the assessee about such entities, who have infused their funds in the investor company. Accordingly, the addition of Rs. 2,23,19,134/- was made by ld. AO invoking the provisions of section 68 of the Act. Aggrieved with the aforesaid addition assessee preferred an appeal

ITA No.4118/Mum/2025 Ms Ruby Sharma before the ld. CIT(A), but with no success, the appeal of assessee has been dismissed by the ld. CIT(A).

4.

To challenge the aforesaid decision by the ld. CIT(A), the assessee is in appeal before us.

5.

At the outset, the ld. Counsel of the assessee submitted that all the primary evidences to satisfy the need of section 68 were furnished by the assessee before the ld. AO, however the ld. AO has made an adverse observation and the same were sustained by the ld. CIT(A). It was the submission that the documents related to the investor company i.e., M/s Yakov Trader Pvt. Ltd., such as confirmation, audited annual accounts, copy of ITR etc. were furnished. It is further submitted that the ld. AO, had first tried to invoke provisions of section 2(22)(e), however after explanations by the assessee, those proceedings were dropped, but had finally made the addition under section 68 of the Act under preconceived notion. Ld. AR further submitted that the assessee had discharged her onus by submitting necessary documents to satisfy the needs of section 68 of the Act, under which for the relevant assessment year i.e., 2011-12 the assessee is not required to furnish the details of source of source, if any addition was to be made the same can be made in the hands of lander company for funds procured by them. It was the prayer that the addition made by the ld. AO and sustained by ld. CIT(A) cannot survive, against the mandate and settled principle of law, therefore such addition is liable to be struck down. 5

ITA No.4118/Mum/2025 Ms Ruby Sharma

7.

Per contra, the ld. Sr. DR submitted that the assessee had brought back her own money by layering of transactions through various shell investor companies. The assessee has furnished information about the main investor namely M/s Yakov Trader Pvt. Ltd., however the funds received by M/s Yakov Trader Pvt. Ltd. from three different companies namely Cadman Retail Trade Pvt. Ltd., Andrew Engineering Pvt. Ltd. and B 60B. Station Plaza and IBL Treasury Account, no satisfactory explanation regarding nature and source of such amount could be provided by the assessee. Only confirmation from the investor company could not substantiate the genuineness of transaction and credibility of the said investor. The entire reserve and surplus in the financials of M/s Yakov Trader Pvt. Ltd. are created out of share premium received by the assessee. In such circumstances the creditworthiness of the investor company remains doubtful and therefore the addition under section 68 was rightly made by the ld. AO and sustained by the ld. CIT(A).

8.

We have considered the rival submissions and perused the material available on record. Admittedly in present case, the lender company was incorporated by the assessee being one of the directors along with her husband Mr. Deepak Sharma being the director of the said company. Certain funds were infused by the company received from various entities to the tune of Rs. 2.25 crores in the form of share capital and share premium, out of such funds the said

ITA No.4118/Mum/2025 Ms Ruby Sharma company has granted an unsecured loan of Rs. 2,23,19,134/- to the assessee. The assessment was initiated on account of such transaction, wherein a unsecured loan was extended by the lender company to the director / assessee, therefore anticipating that it may fall within the scope of section 2(22)(e), however since the reserve and surplus are created out of share premium and not from the accumulated profits of the company, such provisions are found to be out of place, so proceedings are dropped. From the bank statement of the investor company, the ld. AO has drawn certain information as to how such amounts were received by the investor company and find that several other companies and entities have made investment in the said company. A question was raised by the ld. AO to explain, why these unrelated entities have made such huge investment in the investor company and the said fund was utilized only in providing of unsecured loan to the assessee, who is a director in the investor company. Similar question was raised by the ld. CIT(A). The ld. CIT(A) has noted that the assessee could not justify as to how such huge quantum of reserve and funds are generated within one year of the incorporation of the company, there was no operating revenue, even then the shares were sold at gigantic premium. It is also noted that the address of the company was same as the address of assessee. It is further noted that the assessee herein has only income of Rs. 1,48,759/-, who had provided with a loan of Rs. 2.23 crore by the investor company, which too are interest free. All such facts and circumstances states that the company was formulated only for providing loans to the assessee to be 7

ITA No.4118/Mum/2025 Ms Ruby Sharma utilized for purchase of a house. Before us Ld. AR submitted that all the necessary documents needed to satisfy the test of section 68 were furnished by the assessee at assessment stage as well as before the first appellate authority. No further independed enquiries were made from the concerned parties. The onus of the assessee was duly discharged and nothing could be brought on record by the revenue to establish that the transaction was bogus in nature. It is also clarified that the nature and source of the source is not required to be explained by the assessee being the matter pertains to AY 2011-12, a year prior to amendment in section 68 of the Act. It is also submitted that even if there is a doubt about the activities of the lender company at the most the addition could have been made in the hands of lender company. We find force in the submissions of the assessee, that she had furnished all the necessary documents before the AO, such as Confirmation of the Yakov Traders Pvt. Ltd., MOA- AOA, Audited Financials as at 31st March 2012, Bank Statement etc. However, the Ld. AO made with the assumption that funds are created to facilitate the assessee, with operational activity. The genuineness of transaction therefore doubted without any basis, as there was no enquiry from the concerned parties to draw an opinion qua the investments received by the lender company, which in turn granted in the form of loan to the assessee. The assessee had discharged her burden to establish the funds received from a company having identity and sufficient funds in its coffers. In such circumstances, the lender who had granted

ITA No.4118/Mum/2025 Ms Ruby Sharma the loan can be investigated to establish any doubt regarding the genuineness of the transaction or credit worthiness of the lender. 9. In backdrop of such facts and circumstances, we are unable to find any substance in the findings of the AO and Ld. CIT(A), whereas the submissions made by ld. AR that all the necessary and primary documents were furnished before the revenue authorities, so the onus cast on the assessee as per extant provisions of section 68 of the Act has been duly discharged. The extant law permits the revenue to initiate necessary actions against the investors / lenders, in case the doubt persists, the assessee cannot be saddled on account of surmises and conjectures based on circumstances, beyond any facts on record. We, thus do not find any merits in the findings of ld. AO as well as ld. CIT(A), to upheld the same. Consequently, we direct to delete the addition made u/s 68 of the Act.

10.

In result the appeal of assessee stands allowed, in terms of our aforesaid observations.

Order pronounced in the open court on 06-05-2026.

Sd/- Sd/- Sd/- (AMIT SHUKLA) (ARUN KHODPIA) Judicial Member Accountant Member Mumbai, Dated : 06-05-2026. Ankit K, Sr. PS

ITA No.4118/Mum/2025 Ms Ruby Sharma Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT

BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai

More judgments on Section 147

All 49,210 judgments and leading authorities on Section 147 →

Recent GST High Court judgments

Search GST case law →